Young in­vestors face hard test

Many con­fronting a volatile mar­ket for the first time

South Florida Sun-Sentinel (Sunday) - - People On The Move - By Stan Choe

NEW YORK — Af­ter glid­ing through years where stocks mostly just rose, a gen­er­a­tion of in­vestors last year sud­denly con­fronted a hard fi­nan­cial truth: Stocks are risky and can plunge at any mo­ment.

For older in­vestors, the nearly 20 per­cent drop in the S&P 500 in­dex from late Septem­ber through Christ­mas Eve was a re­minder of the fear that gripped mar­kets dur­ing the 2008 fi­nan­cial cri­sis, though not as bad. But for many in­vestors in their 20s and early 30s, it was the first test of their met­tle since they opened 401(k) and bro­ker­age ac­counts.

So how did they do? The an­swer is cru­cial be­cause th­ese younger savers are on the hook to pay for more of their re­tire­ments than their par­ents or grand­par­ents.

The fear was that many would panic at their first brush with a se­vere down­turn, sell their stocks and lock in the losses. In­vest­ing is an area where many ex­perts say a par­tic­i­pa­tion tro­phy is an un­ques­tion­ably good thing. Given enough years, stocks have gone on to re­cover from ev­ery one of their past de­clines.

Early in­di­ca­tions are that mil­len­nial in­vestors gen­er­ally avoided panic. And not only are they still par­tic­i­pat­ing, but many em­braced the volatil­ity and saw it as an op­por­tu­nity to buy more stocks at lower prices, ac­cord­ing to data from bro­ker­ages.

At Fidelity, for ex­am­ple, mil­len­nial in­vestors put in twice as many buy as sell or­ders for stocks and stock funds dur­ing the last three months of 2018, when the S&P 500 plunged 14 per­cent for its worst quar­terly per­for­mance

in nearly seven years.

They were ac­tu­ally more ag­gres­sive about buy­ing stocks than they were a year ear­lier, at the end of 2017, when the S&P 500 closed out one of its strong­est and calmest years in decades.

Older gen­er­a­tions of in­vestors also em­braced the tu­mult in re­cent months and picked up their buy­ing ac­tiv­ity for stocks, though they were not as ag­gres­sive as mil­len­ni­als. Baby Boomers had roughly 1.3 buy or­ders for ev­ery sell or­der dur­ing last year’s fourth quar­ter, for ex­am­ple. The data cover Fidelity’s

20.8 mil­lion retail bro­ker­age ac­counts.

The de­ci­sions did not come stress-free. Con­sider Mar­cus Har­ris, a 35-yearold in­ter­nal-medicine physi­cian in the Hous­ton area.

Last sum­mer, when stocks were set­ting record af­ter record, Har­ris felt con­fi­dent that he would be able to han­dle a se­vere down­turn, even though he had yet to ex­pe­ri­ence one in his five years of in­vest­ing.

When the mar­ket started skid­ding on wor­ries about a slow­ing econ­omy and Pres­i­dent Don­ald Trump’s trade war with China, though, Har­ris ac­knowl­edges he felt some trep­i­da­tion.

He had set his phone to no­tify him when some of the stocks he owns hit cer­tain prices, both on the high and the low ends. As the S&P 500 ca­reened lower in De­cem­ber to its worst month in nearly a decade, he got used to hear­ing of­ten from his phone.

“It was prob­a­bly five times a day,” he said. “Ding!

This stock has hit your low. Ding! That stock hit your low.”

“It was a lit­tle scary, look­ing at my re­tire­ment ac­count say­ing, ‘Man, that’s a lot of salary gone,’ ” he re­called. Har­ris even­tu­ally turned off the no­ti­fi­ca­tions. But he also said that he knew he had many years to go be­fore he needed to use the money.

He ended up putting more money into stocks late last year, hop­ing to buy low. “I got age on my side,” Har­ris said. “This is a 30year plan.”

The re­ac­tion was sim­i­lar for many clients of Charles Adi, fi­nan­cial ad­viser at Blue­print 360 in Hous­ton.

Be­fore the down­turn, Adi had dis­cussed mar­ket volatil­ity and the im­por­tance of stick­ing with an in­vest­ment plan many times with his

clients. But he got more wor­ried calls than he was ex­pect­ing as mar­kets tum­bled.

“You think your clients are go­ing to act one way be­cause you have th­ese con­ver­sa­tions, and they re­as­sure you they know the game plan, but you re­ally don’t know what’s go­ing to hap­pen in the mo­ment,” he said. “More of­ten than not, the con­ver­sa­tion I had was: ‘You told me there were go­ing to be some fluc­tu­a­tions, but I didn’t un­der­stand what you meant. Are we go­ing to change the plan?’ ”

Only four of his clients moved their in­vest­ments out of stocks and into cash, and three of them were older.

For many of his younger clients, he sug­gested view­ing the drops as an op­por­tu­nity to dou­ble down on stocks they were fa­mil­iar with and had al­ready reaped gains from. Many agreed.

Mil­len­nial in­vestors were close to flat in terms of be­ing net buy­ers or sell­ers of stocks at TD Amer­i­trade. That’s sim­i­lar to how they be­haved in 2015, when the S&P 500 lost more than 10 per­cent in one five-day stretch.

“Not freaked out at all,” said JJ Ki­na­han, chief mar­ket strate­gist at TD Amer­i­trade. “My the­ory, given the lim­ited sam­ple size, is that be­cause of their age, they’re will­ing to take more risk and see it as a buy­ing op­por­tu­nity.”

Of course, the cus­tomers at TD Amer­i­trade are those who chose to in­vest. The ma­jor­ity of younger house­holds don’t own any stocks at all.

More than 41 per­cent of all house­holds led by some­one un­der 35 own stocks in some way, ac­cord­ing to the lat­est data from the Fed­eral Re­serve. For all other age groups, ex­cept those 75 or older, more than half of house­holds own stocks. The fig­ures in­clude both peo­ple who ac­tively trade stocks and oth­ers who have a tar­get-date re­tire­ment mu­tual fund in a 401(k) that they never touch.

But the rate of stock own­er­ship has been go­ing up in re­cent years for younger house­holds. The most re­cent tally, from 2016, showed the high­est rate of own­er­ship for young house­holds since 2007, be­fore the fi­nan­cial cri­sis hit its peak.

Re­cent weeks have brought some re­lief for in­vestors, as the S&P 500 has climbed about 12 per­cent since hit­ting a bot­tom on Christ­mas Eve.

That in­cludes Har­ris, the doc­tor whose phone was ding­ing so of­ten. “A few days af­ter Christ­mas,” he said, “I turned the no­ti­fi­ca­tions back on.”


Mar­cus Har­ris, 35, and a physi­cian in Spring, Texas, ex­pe­ri­enced his first mar­ket down­turn in five years of in­vest­ing.

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